BU340 Managerial Finance

Ashworth College

BU340 Financial Management I Assignment 04

ASSIGNMENT 04

BU340 Financial Management I

Directions:  Be sure to save an electronic copy of your answer before submitting it to

Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be
sure to use correct English, spelling, and grammar.

Respond to the items below.

 
Part A: Given the following cash inflow at the end of each year, what is the future value of
this cash flow at 6%, 9%, and 15% interest rates at the end of the seventh year?
 
Year 1                             $15,000
Year 2                             $20,000
Year 3                             $30,000
Years 4 through 6                    $0
Year 7                          $150,000
 
Part B: County Ranch Insurance Company wants to offer a guaranteed annuity in units of
$500, payable at the end of each year for 25 years. The company has a strong investment
record and can consistently earn 7% on its investments after taxes. If the company wants to
make 1% on this contract, what price should it set on it? Use 6% as the discount rate. Assume
that it is an ordinary annuity and that the price is the same as present value.
 
Part C: A local government is about to run a lottery but does not want to be involved in the payoff if a winner
picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have
the trust (probably a local bank) pay the annual payments. The first winner of the lottery chooses the annuity
and will receive $150,000 a year for the next 25 years. The local government will give the trust $2,000,000 to
pay for this annuity. What investment rate must the trust earn to break even on this arrangement?
 

Part D: Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery.
The State offers you two payment plans for the $5,000,000 advertised jackpot. You can take annual payments of
$250,000 for the next 20 years or $2,867,480 today.
 

a.       If your investment rate over the next 20 years is 8%, which payoff will you choose?

b.      If your investment rate over the next 20 years is 5%, which payoff will you choose?
 

c.       At what investment rate will the annuity stream of $250,000 be the same as the lump sum
payment of $2,867,480?

  

BU340 Financial Management I Assignment 08

ASSIGNMENT 08

BU340 Financial Management I

Directions:  Be sure to save an electronic copy of your answer before submitting it to

Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be
sure to use correct English, spelling, and grammar.

Respond to the items below.

 
Part A: Moore Company is about to issue a bond with semiannual coupon payments, a coupon rate of 8%, and
par value of $1,000. The yield-to-maturity for this bond is 10%.
 
a.   What is the price of the bond if the bond matures in 5, 10, 15, or 20 years?

b.   What do you notice about the price of the bond in relationship to the maturity of the bond?

 
Part B: The Crescent Corporation just paid a dividend of $2 per share and is expected to
continue paying the same amount each year for the next 4 years. If you have a required rate
of return of 13%, plan to hold the stock for 4 years, and are confident that it will sell for $30
at the end of 4 years, how much should you offer to buy it at today?
 
Part C: Use the information in the following table to answer the questions below.
 
State of Probability Return on A Return on B Return on C
Economy of State in State in State in State
Boom .35 0.040 0.210 0.300
Normal .50 0.040 0.080 0.200
Recession .15 0.040 -0.010 -0.260
 

a.   What is the expected return of each asset?

 

b.   What is the variance of each asset?

 
c.   What is the standard deviation of each asset?
 

BU340 Managerial Finance I Assignment 03

1. Cyber Security Systems had sales of 3,000 units at $50 per unit last year. The marketing manager
projects a 20 percent increase in units volume sales this year with a 10 percent price increase.
Returned merchandise will represent 6 percent of total sales. What is your net dollar sales projection
for this year?

2. Delsing Plumbing Company has beginning inventory of 14,000 units, will sell 50,000 units for the
month, and desires to reduce ending inventory to 40 percent of beginning inventory. How many units
should Delsing produce?

3. At the end of January, Higgins Data Systems had an inventory of 600 units, which cost $16 per unit
to produce. During February the company produced 850 units at a cost of $19 per unit. If the firm sold
1,100 in February, what was its cost of goods sold (assume LIFO inventory accounting)?

4.. Victoria's Apparel has forecast credits sales for the fourth quarter of the year as:
September (actual) ……………… $50,000
Fourth Quarter
October …………………………………. $40,000
November ……………………………… $35,000
December ………………………………..$60,000
Experience has shown that 20 percent of sales receipts are collected in the month of sale, 70 percent
in the following month, and 10 percent are never collected. Prepare a schedule of cash receipts for
Victoria's Apparel covering the fourth quarter (October through December).

5. The Manning Company has financial statements as shown below, which are representative of the
company's historical average. The firm is expecting a 20 percent increase in sales next year, and
management is concerned about the company's need for external funds. The increase is sale is
expected to be carried out without any expansion of fixed assets, but rather through more efficient
asset utilization. In the existing store. Among liabilities, only current liabilities vary directly with sales.
Using the percent-of-sales method, determine whether the company has external financing needs, or
a surplus of funds.
Income Statement
Sales $200,000
Expenses 158,000
Earnings before interest and taxes $42,000
Interest 7,000
Earnings before taxes $35,000
Taxes $15,000
Earnings after taxes $20,000
Dividends $6,000

Balance Sheet
Assets
Cash $5,000
Accounts receivable 40,000
Inventory 75,000
Current assets $120,000
Fixed assets 80,000
Total assets 200,000

Liabilities and Stockholders' Equity

Accounts payable 25,000
Accrued wages 1,000
Accrued taxes 2,000
Current liabilities 28,000
Notes payable 7,000
Long-term debt 15,000
Common Stock 120,000
Retained earnings 30,000
Total liabilities and stockholders' equity 200,000

BU340 Managerial Finance

BU340 Managerial Finance I

Directions: Be sure to make an electronic copy of your answer before submitting it to Ashworth
College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use
correct English spelling and grammar. Sources must be cited in APA format. Your response should be
a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the
"Assignment Format" page for specific format requirements.

1. What form of partnership allows some of the investors to limit their liability? Explain by giving
examples. (25 points)

2. When does insider trading occur? What government agency is responsible for protecting against
the unethical practice of insider trading? Explain by giving examples. (25 points)

3. Explain how the tax code allows depreciation to contribute to cash flow. (25 points)

4. Explain why inflation may restrict the usefulness of the balance sheet as normally presented. (25
points)

BU340 Managerial Finance I Part-1

Part 1:
Directions: Unless otherwise stated, answer in complete sentences, and be sure to use correct
English spelling and grammar. Sources must be cited in APA format. Your response should be a
minimum of one (1) single-spaced page to a maximum of two (2) pages in length
1. What form of partnership allows some of the investors to limit their liability? Explain by giving
examples. (25 points)
2. When does insider trading occur? What government agency is responsible for protecting against
the unethical practice of insider trading? Explain by giving examples. (25 points)
3. Explain how the tax code allows depreciation to contribute to cash flow. (25 points)
4. Explain why inflation may restrict the usefulness of the balance sheet as normally presented. (25
points)
Ashworth Semester Exam BU340 Managerial Finance I
Question 1
A  ________ has limited liability, is a legal entity, and can issue bonds.
sole proprietorship
general partnership
limited partnership
corporation

Question 2
________ is the name given to the processes surrounding recognition of the principal-agent problem
and ways to align agents with the interests of the principals.
Principal theory
Interested party theory
Agency theory
Compensation process theory

Question 3
Which of the following items may be included on all balance sheets at Yahoo! Finance, even though
they may not be part of an individual company's balance sheet for that year?
The effect of accounting changes, extraordinary items, and treasury stock
Deferred long-term asset charges, treasury stock, and extraordinary items
Goodwill, deferred long-term asset charges, and treasury stock
Cost of revenue, goodwill, and treasury stock

Question 4
In finance, we separate operating decisions from financing decisions, and thus exclude ________ as
a part of operating income from the income statement.
cash flow
dividends
interest expense
earnings

Question 5
You have purchased a Treasury bond that will pay $10,000 to your newborn child in 15 years. If this
bond is discounted at a rate of 3.875% per year, what is today's price (present value) for this bond?
8417
8500
5654
10000

Question 6
What type of loan requires both principal and interest payments as you go, making equal payments
each period?
Amortized loan
Interest-only loan
Discount loan
Compound loan

Question 7
APRs must be converted to the appropriate periodic rates when compounding is:
more frequent than once a year.
less frequent than once a year.
more frequent than once a month.
less frequent than once every six months.
Question 8
The appropriate rate to use to discount the cash flows of a bond in order to determine the current
price is the:
yield to maturity
coupon rate
par rate
current yield

Question 9
Bonds are different from stocks because:
bonds promise fixed payments for the length of their maturity.
bonds give payments only after other owners are paid.
bonds do not have maturity dates.
bonds promise growth in earnings

Question 10
Robert invested in stock and received a positive return over a nine-month period. Which of the
following types of returns will be greater?
Holding period return (HPR)
Effective annual return (EAR)
Annual percentage rate (APR)
There is not enough information to make a definitive choice.

    

BU340 Lesson 1 Exam SCORE 100 PERCENT

5 / 5 points
Which of the following is an advantage of a sole
proprietorship?
Question options:
The owner's unlimited liability

The lack of continuity upon death of the owner

The ease of start-up

The ability to raise capital

Question
2
Stocks are bought and sold in __________ markets.
Question options:
equity

debt
 derivatives

foreign exchange

Question
3
The common objective of borrowing and lending is to:
Question options:
make all parties better off.

gain a profit at the other's expense.

make a firm or individual appear more liquid than is really the case.

thwart regulatory authority.

Question
4
__________ are the forums where buyers and sellers of
financial assets and commodities meet.
Question options:
Housing markets

Federal Reserve banks

Financial markets

Automotive shows

Question 5
Financial assets that will mature within a year are bought and
sold in the __________ market.
Question options:
debt

capital

stock

money

Question
6
The set of financial activities that support the OPERATIONS of
a business is best described by which main area of finance?
Question options:
Corporate finance

Investments

Financial institutions and markets

International finance

Question
7
At its most basic level, the function of financial intermediaries
is to:
Question options:
track and report interest rates.

move money from lenders to borrowers and back again.

report all financial transactions to the federal government.

effect a transfer of wealth in society.

Question
8
__________ addresses the question of how to handle our day-
to-day business needs.
Question options:
Capital budgeting

Capital structure

Working capital management

Accounts receivable management

Question
9
__________ is a major disadvantage of the corporate form of
business.
Question options:
Double taxation

Unlimited liability

Lack of ability to raise capital

Transfer of ownership

Question 10
In agency theory, the owners of the business are referred to as
__________, and the managers are referred to as __________.
Question options:
bondholders, principals

stockholders, bondholders

agents, principals

principals, agents

Question 11
Options are bought and sold in __________ markets.
Question options:
equity

debt

derivatives

foreign exchange

Question 12
Of the following, which is NOT one of the four main areas of
finance?
Question options:
International Finance

Corporate Finance

Investments
 All are considered main areas of finance.

Question 13
The problem of motivating one party to act in the best interest
of another party is known as the:
Question options:
leadership directive.

management priority.

principal-agent problem.

sigma six structure.

Question 14
The means by which a company is financed refers to the firm's
________.
Question options:
capital budgeting

capital structure

accounts receivable management

working capital management

Question 15
Currencies are bought and sold in __________ markets.
Question options:
equity

debt

derivatives

foreign exchange

Question 16
__________ addresses the question of what business we should
be in over the long run.
Question options:
Capital budgeting

Capital structure

Working capital management

Accounts receivable management

Question 17
The sale of "new" securities, where the financial asset is being
traded for the very first time, is said to take place in the
__________ market.
Question options:
primary

money

secondary

capital

Question 18
__________ is the area of finance concerned with activities like
borrowing funds to finance projects such as plant expansions
or new product launches.
Question options:
Working capital management

International finance

Investments

Corporate finance

Question 19
A __________ is a business that is owned entirely by an
individual.
Question options:
 sole proprietorship

partnership

subchapter S corporation

corporation

Question 20
__________ is the area of finance concerned with the activities
of buying and selling financial assets such as stocks and
bonds.
Question options:
Investments
Corporate finance
International finance
Financial markets and institutions
 

        

BU340 Lesson 2 Exam SCORE 100 PERCENT

5 / 5 points
In regard to the Cash Flow Statement, assume we want to
break down Yahoo! Finance's cost of revenue into its two
major components, cost of goods sold (COGS) and
depreciation. To do so, we would need to look at __________
for the depreciation amount.
Question options:
the Statement of Cash Flow

both the Income Statement and the Statement of Cash Flow

both the Balance Sheet and the Statement of Cash Flow

the Income Statement

Question
2
Which of the following statements is false?
Question options:
Financial data on the Internet or via company annual reports provide a wealth of knowledge abou

Knowing the relationship of the primary financial statements and how to utilize the data in each a

Although the annual report of a company is printed and mailed to owners and the SEC, much of t
websites.
EDGAR stands for Electronic Data Gathering Analysis and Retribution.

Question 3
Notes to the financial statements help explain many of the
details necessary to gain a more complete picture of the firm's
performance. Some of the items often disclosed in the
financial notes include which of the following?
Question options:
How a specific item was computed

Additional information on a company's financial condition

Methods used to prepare the financial statements

All of the above items are often included.

Question 4
The purpose of studying financial statements is:
Question options:
to mechanically build portfolio analysis.

to understand those portions of the statements that have relevance for financial decision making.

to primarily investigate all portions of the statements that have relevance for dividend policy.

to mechanically learn how to read and understand footnotes.

Question
5
The annual report of a company is:
Question options:
 printed and mailed to owners and the SEC.

not available online.

not mailed to owners but only to the SEC.

always available online in more detail.

Question
6
Which of the following statements is true?
Question options:
The finance manager uses the framework of the income statement to find <br /> the operating inc
the true cash flow from operations.
In accrual-based accounting, revenue is recorded at the time of sale if <br /> the revenue has been

Three fundamental issues separate net income and cash flow: accrual <br /> accounting, noncash

Generally Accepted Accounting Principles (GAAP) in the United States do <br /> not allow the u

Question
7
Which of the following identities is true?
Question options:
Operating Cash Flow = EBIT + Depreciation - Taxes

Net Capital Spending = Ending Net Fixed Assets - Depreciation

Change in Net Working Capital (NWC) = Current Assets - Current Liabilities

Cash Flow from Assets = Operating Cash Flow + Net Capital Spending

Question
8
One of the key components to making financial decisions is
to:
Question options:
understand the timing and amount of dividends.

understand the timing and amount of cash flow.

understand the timing of EBIT.

 understand the amount of net income.

Question
9
Which one of the answers below is NOT one of the three
components of the "Cash Flow from Assets"?
Question options:
Operating Cash Flow

Net Capital Spending

Noncash expenses

Change in Net Working Capital

Question 10
Cash flow is:
Question options:
the increase but not decrease in cash for the period.

the decrease but not increase in cash for the period.

the increase or decrease in cash for the period.

the net income for the period.

Question 11
Which of the statements below is true?
Question options:
Accounting Identity is: Assets = Liabilities - Owners' Equity.

Accounting Identity is: Assets = Liabilities + Owners' Equity.

Accounting Identity is: Assets = Owners' Equity - Liabilities.

Accounting Identity is: Liabilities = Assets + Owners' Equity.

Question 12
To find operating cash flow for the business for the year, add
depreciation expense to EBIT and then:
Question options:
 subtract the interest expenses.

add the taxes.

subtract the taxes.

add interest expenses.

Question 13
Understanding the sources and uses of cash in the recent past
will enable a manager to __________ the cash flow for a
potential project of the firm.
Question options:
determine with perfect precision

forecast with perfect precision

predict more accurately

know today

Question 14
It is important to remember that the fundamental __________
of accounting is the debit and credit recording activity where
debits always equal credits.
Question options:
effect

end product

outcome

identity

Question 15
Cash flow from assets is derived from:
Question options:
cash flow from operating activities and cash flow from investing activities.

cash flow from operating activities and cash flow from financing activities.
 cash flow from financing activities and cash flow from investing activities.

cash flow from creditors and cash flow from investing activities.

Question 16
Which of the statements below is false?
Question options:
The income statement summaries and categorizes a company's revenues and expenses for that pe

Typically, income statements are prepared quarterly and annually for distribution outside the com

The income statement begins with revenue and subtracts various operating expenses until arrivin

The balance sheet reports the performance of the firm over the past period. It summarizes and ca

Question 17
Which of the sections below is NOT contained in the annual
report?
Question options:
Prediction of competitors' returns

Company highlights

President's letter to the shareholders

Description of the company's activities (usually with pictures and graphs)

Question 18
Which of the following items may be included on all income
statements at yahoo.finance.com , even though they may not
be part of an individual company's income statement for that
year?
Question options:
Cost of Revenue and Extraordinary Items

Goodwill and Effect of Accounting Changes

Effect of Accounting Changes and Deferred Long-Term Asset Charges

Cost of Revenue and Treasury Stock

Question 19
Debts to be paid more than one year from now are claims
against the firm's assets; in other words, they are long-term
liabilities. These claims are from __________ who have
provided capital to the firm but whose entire repayment is not
due during the coming year or operating cycle.
Question options:
banks and bondholders

banks and stockholders

stockholders and bondholders

all long-term lenders

Question 20
Notes to the financial statements help explain many of the
details necessary to gain a more complete picture of the
firm's:
Question options:
capital budget.
choice of management.
dividend policy.
performance.
 

    

BU340 Wek 3 Threaded Discussion

Discuss the relationship of bond prices and interest rates. Do interest rates affect coupon bonds differ
from zero-coupon bonds? Explain why or why not.

(248 words with 2 references)

BU340 Lesson 3 Exam SCORE 95 PERCENT

 5 / 5 points
Which of the following will result in a future value greater than
$100?
Question options:
PV = $50, r = an annual interest rate of 10%, and n = 8 years.

PV = $75, r = an annual interest rate of 12%, and n = 3 years.

PV = $90, r = an annual interest rate of 14%, and n = 1 year.

All of the future values are greater than $100.

Question
2
Your university is running a special offer on tuition. This
year's tuition cost is $18,000. Next year's tuition cost is
scheduled to be $19,080. The university offers to discount
next year's tuition at a rate of 6% if you agree to pay both
years' tuition in full today. How much is the total tuition bill
today if you take the offer?
Question options:
$18,000

$34,981

$37,080

$36,000

Question
3
Which of the following formulas is correct for finding the
present value 
of an investment?
Question options:
<p><img border="0" id="MathMLEq1" src="https://study.ashworthcollege.edu/access/content/at
429e575b-0837-46b5-afb1-2057ddf903db/fmath-equation-40E4EDFD-A1CD-E9CF-8E58-AA18
<p> PV = FV × (1 + r)ⁿ</p>
 <p> PV = FVⁿ × (1 + r)</p>

<p><img border="0" id="MathMLEq2" src="https://study.ashworthcollege.edu/access/content/at

955492a1-a2af-4fad-914b-e11637fbcf20/fmath-equation-5EDD8CA8-9A04-BD7F-C0D8-D1834
Question
4
Gasoline cost $.10 per gallon in 1930. Over the next 60 years,
the price rose at an average rate of 4.42% per year. Based on
this information, what was the average price of a gallon of gas
in 1990?
Question options:
$1.34 per gallon

$1.53 per gallon

$2.65 per gallon

$2.75 per gallon

Question
5
You won the state lottery and took the payout as a
$1,283,475 lump sum today. Your spouse has decided that
you need to invest this money for the next 10 years and can
expect it to earn an average annual rate of return of 7.18%. If
this comes to pass, how much money will be in the account at
the end of the period?
Question options:
$8,471,253

$2,567,586

$1,920,388

$1,890,471

Question
6
You could double your money in about 9 years if you could
earn an annual rate of return of what? Use the Rule of 72 to
determine your answer.
Question options:
You would need to earn an annual rate of return of about 12%.

You would need to earn an annual rate of return of about 10%.

You would need to earn an annual rate of return of about 8%.

There is not enough information to answer this question.

Question 7
A two-year investment of $200 is made today at an annual
interest rate of 6%. Which of the following statements is true?
Question options:
The PV is $178.

The FV is $224.

The FV is $224.72.

This question is irrelevant because there are no two-year investments that earn an average of 6% p

Question 8
An investment promises a payoff of $195 two and one-half
years from today. At a discount rate of 7.5% per year, what is
the present value of this investment?
Question options:
$162.03

$162.75

$169.47

There is not enough information to answer this question.

Question 9
A two-year investment of $200 is made today at an annual
interest rate of 6%. Which of the following statements is true?
Question options:
The future value would be greater if the interest rate was higher.

The present value would be greater if the interest rate was higher.

The future value would be greater if the interest rate was lower.

The future value does not change as the interest rate changes.

Question 10
Which of the following investments has a larger future value:
Investment A—a $1,000 investment earning 5% per year for 6
years, or Investment B—a $500 investment earning 10% per
year for 6 years, with a bonus of an extra $500 added at the
end of the sixth year?
Question options:
Investment B, with a future value of $1,386.

Investment A, with a future value of $1,386.

Investment A, with a future value of $1,340.

The investments have equal value.

Question 11
Which of the following actions will increase the present value
of an investment?
Question options:
Decrease the interest rate.

Decrease the future value.

Increase the amount of time.

All of the above will increase the present value.

Question 12
A $100 deposit today that earns an annual interest rate of
10% is worth how much at the end of two years? Assume all
interest received at the end of the first year is reinvested the
second year.
Question options:
$100

$120

$121

$122

Question 13
In 1970, before the era of major league baseball free agency,
the minimum player salary was $12,000. In 1975, the
minimum salary was $16,000. What was the average annual
growth in the minimum salary in major league baseball over
those five years?
Question options:
13.40%

2.67%

5.92%

15%

Question 14
Which of the following is the correct formula for calculating
the future value?
Question options:
<p><img border="0" id="MathMLEq2" src="https://study.ashworthcollege.edu/access/content/a
584b2c4e-ea3e-4acd-9ca4-29fcc4df4a20/fmath-equation-AD7D39AD-5CB0-C75B-E35C-1111
<p> FV = PV × (1 + r)ⁿ</p>

<p> PV = FV × (1 + r)ⁿ</p>

<p><img border="0" id="MathMLEq3" src="https://study.ashworthcollege.edu/access/content/a

14fd8705-cb6b-4a3f-b2fc-97a1138b4b67/fmath-equation-8BEAAE42-2606-88E2-7B6E-01072
Question 15
In your first year out of college, you hope to earn $50,000 per
year. How many years will you have to work until you earn
$100,000 if your income increases at a rate of 10% per year?
Use the Rule of 72 to determine your answer.
Question options:
You would need to work for just over 5 years to reach an income level of $100,000 per year.

You would need to work for just over 6 years to reach an income level of $100,000 per year.

You would need to work for just over 7 years to reach an income level of $100,000 per year.

You would need to work for just over 8 years to reach an income level of $100,000 per year.

Question 16
Rory has $2,500 but needs $5,000 to purchase a new golf
cart. If he can invest his money at a rate of 12% per year,
approximately how many years will it take the money in Rory's
account to grow to $5,000? Use the Rule of 72 to determine
your answer.

Note: The golf cart's price may have changed by the time
Rory's account reaches a value of $5,000.

Question options:
2 years

4 years

6 years

8 years

Question 17
Which of the following investments has a larger future value?
A $100 investment earning 10% per year for 5 years, or a
$100 investment earning 5% per year for 10 years?
Question options:
 An investment of $100 invested at 10% per year for 5 years because it has a future value of $161

An investment of $100 invested at 10% per year for 5 years because it has a future value of $162

An investment of $100 invested at 5% per year for 10 years because it has a future value of $161

An investment of $100 invested at 5% per year for 10 years because it has a future value of $162

Question 18
Your production manager informs you that currently the firm
is producing 1,438 heating units per month but has plans to
increase production at a rate of 5% per month until the firm is
producing 3,000 units per month. How many months will this
take?
Question options:
27.33 months

15.07 months

14 months

There is not enough information to answer this question.

Question 19
Your aunt places $13,000 into an account earning an interest
rate of 7% per year. After 5 years the account will be valued at
$18,233.17. Which of the following statements is correct?
Question options:
The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the

The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the intere

The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the intere

The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the intere

Question 20
__________ is simply the interest earned in subsequent periods
on the interest earned in prior periods.
Question options:
 Quoted interest
Anticipated interest
Simple interest
Compound interest

BU340 Lesson 4 & 5 Exam SCORE 95 PERCENT

2.5 / 2.5 points
You have saved $47,000 for college and wish to use $15,000
per year. If you use the money as an ordinary annuity and earn
6.15% on your investment, how many years will your annuity
last? Use a calculator to determine your answer.
Question options:
4.27 years

3.13 years

3.59 years

3.36 years

Question
2
An annuity is a series of:
Question options:
variable cash payments at regular intervals across time.

equal cash payments at regular intervals across time.

variable cash payments at different intervals across time.

equal cash payments at different intervals across time.

Question
3
If you borrow $100,000 at an annual rate of 8% for a 10-year
period and repay the total amount of principal and interest
due of $215,892.50 at the end of 10 years, what type of loan
did you have?
Question options:
Amortized loan

Interest-only loan

Discount loan

Compound loan

Question
4
The main variables of the TVM equation are:
Question options:
present value, future value, time, interest rate, and payment.

present value, future value, perpetuity, interest rate, and payment.

present value, future value, time, annuity, and interest rate.

present value, future value, perpetuity, interest rate, and principal.

Question
5
You just won the Publisher's Clearing House Sweepstakes and
the right to 20 after-tax ordinary annuity cash flows of
$163,291.18. Assuming a discount rate of 7.50%, what is the
present value of your lottery winnings? Use a calculator to
determine your answer.
Question options:
$3,265,823.60

$1,789,520.81

$1,664,670.52

There is not enough information to answer this question.

Question
6
You have just won the Reader's Digest lottery of $5,000 per
year for 20 years, with the first payment today followed by 19
more start-of-the-year cash flows. At an interest rate of 5%,
what is the present value of your winnings?
Question options:
$100,000

$65,426.60

$62,311.05

$47,641.18

Question
7
What is the future value in Year 12 of an ordinary annuity cash
flow of $6,000 per year at an interest rate of 4% per year?
Question options:
$90,154.83

$93,761.02

$28,675.97

$32,117.08

Question
8
What is the present value of a stream of annual end-of-the-
year annuity cash flows if the discount rate is 0%, and the cash
flows of $50 last for 20 years?
Question options:
Less than $1,000

Exactly $1,000

More than $1,000

This question cannot be answered because we have an interest rate of 0%.

Question
9
Which is greater, the present value of a $1,000 five-year
ordinary annuity discounted at 10%, or the present value of a
$1,000 five-year annuity due discounted at 10%?
Question options:
The ordinary annuity is worth more with a present value of $3,790.79.

The annuity due is worth more with a present value of $4,169.87.

The ordinary annuity is worth more with a present value of $4,169.87.

The annuity due is worth more with a present value of $4,586.85.

Question 10
What is the future value in Year 25 of an ordinary annuity cash
flow of $2,000 per year at an interest rate of 10% per year?
Question options:
$66,505.81

$55,000.00

$196,694.12

$216,363.53

Question 11
Given the following cash flows, what is the future value at
Year 6 when compounded at an interest rate of 8%?

Year 0 2 4 6
$5,00 $9,00
Cash Flow $7,000 $11,000
0 0
Question options:
$38,955.39

$56,687.43

$42,074.42
 $32,000

Question 12
If you borrow $100,000 at an annual rate of 8% for a 10-year
period and repay with 10 equal annual end-of-the-year
payments of $14,902.95, then you have just repaid what type
of loan?
Question options:
Amortized loan

Interest-only loan

Discount loan

Compound loan

Question 13
Randy W. recently won the Western States Lottery of
$6,500,000. The lottery pays either a total of twenty
$325,000 payments per year with the first payment today (i.e.,
an annuity due), or $3,500,000 today. At what interest rate
would Randy be financially indifferent between these two
payout choices?
Question options:
5.37%

7.36%

7.76%

8.00%

Question 14
What type of loan makes interest payments throughout the life
of the loan and then pays the principal and final interest
payment at the maturity date?
Question options:
 Amortized loan

Interest-only loan

Discount loan

Compound loan

Question 15
If you borrow $50,000 at an annual interest rate of 12% for six
years, what is the annual payment (prior to maturity) on an
interest-only type of loan?
Question options:
$0

$6,000

$8,333.33

$12,161.29

Question 16
If for the next 40 years you place $3,000 in equal year-end
deposits into an account earning 8% per year, how much
money will be in the account at the end of that time period?
Question options:
$120,000.00

$777,169.56

$839,343.12

$2,606,942.58

Question 17
If you borrow $100,000 at an annual rate of 8% for a 10-year
period and repay the interest of $8,000 at the end of each
year prior to maturity and the final payment of $108,000 at
the end of 10 years, then you have just repaid what type of
loan?
Question options:
Amortized loan

Interest-only loan

Discount loan

Compound loan

Question 18
Your firm intends to finance the purchase of a new
construction crane. The cost is $1,500,000. How large is the
payment at the end of Year 10 if the crane is financed at a
rate of 8.50% as a discount loan?
Question options:
$228,611.56

$127,500

$3,391,475.16

There is not enough information to answer this question.

Question 19
Present value calculations do which of the following?
Question options:
Compound all future cash flows into the future

Compound all future cash flows back to the present

Discount all future cash flows back to the present

Discount all future cash flows into the future

Question 20
A/An __________ is a series of cash flows at regular intervals
across time.
Question options:
annuity
annuity due
 perpetuity due
None of the above
Online Exam 5
2.5 / 2.5 points
Assume that Don is 45 years old and has 20 years for saving
until he retires. He expects an APR of 8.5% on his investments.
How much does he need to save if he puts money away
annually in equal end-of-the-year amounts to achieve a
future value of $1 million in 20 years' time?
Question options:
$20,570.00

$20,670.97

$20,770.90

$20,800.00

Question 22
The phrase "price to rent money" is sometimes used to refer
to:
Question options:
historical prices.

compound rates.

discount rates.

interest rates.

Question 23
Suppose you invest $1,000 today, compounded quarterly, with
the annual interest rate of 5%. What is your investment worth
in one year?
Question options:
$1,025.00

$1,500.95
 $1,025.27

$1,050.95

Question 24
James is a rational investor wishing to maximize his return
over a 20-year period. The current yield curve is inverted with
one-year rates at 5% and 20-year rates at 3.5%. James will
invest in the lower-rate 20-year bonds if:
Question options:
he thinks rates will fall in the future and locking in long-term rates today may provide the highes

he thinks rates will rise in the future and locking in long-term rates today may provide the lowes

he thinks rates will remain flat at 5% in the future and locking in long-term rates today will prev
opportunity.
James has no idea what to do and should just skip this question.

Question 25
Suppose you deposit money in a certificate of deposit (CD) at
a bank. Which of the following statements is true?
Question options:
The bank is borrowing money from you without a promise to repay that money with interest.

The bank is lending money to you with a promise to repay that money with interest.

The bank is technically renting money from you with a promise to repay that money with interes

The bank is lending money to you, but not borrowing money from you.

Question 26
Assume you just bought a new home and now have a
mortgage on the home. The amount of the principal is
$150,000, the loan is at 5% APR, and the monthly payments
are spread out over 30 years. What is the loan payment? Use a
calculator to determine your answer.
Question options:
$798.95
 $805.23

$850.32

$903.47

Question 27
The two major components of the interest rate that cause
rates to vary across different investment opportunities or
loans are:
Question options:
the default premium and the bankruptcy premium.

the liquidity premium and the maturity premium.

the default premium and the maturity premium.

the inflation premium and the maturity premium.

Question 28
You put down 20% on a home with a purchase price of
$300,000. The down payment is thus $60,000, leaving a
balance owed of $240,000. The bank will loan you the
remaining balance at 4.28% APR. You will make annual
payments with a 20-year payment schedule. What is the
annual annuity payment under this schedule?
Question options:
$18,100.23

$22,625.29

$12,000.00

$33,785.23

Question 29
Nominal interest rates are the sum of two major components.
These components are:
Question options:
 the real interest rate and expected inflation.

the risk-free rate and expected inflation.

the real interest rate and default premium.

the real interest rate and the T-bill rate.

Question 30
When interest rates are stated or given for loan repayments, it
is assumed that they are __________ unless specifically stated
otherwise.
Question options:
daily rates

annual percentage rates

effective annual rates

APYs

Question 31
The __________ compensates the investor for the additional
risk that the loan will not be repaid in full.
Question options:
default premium

inflation premium

real rate

interest rate

Question 32
If you take out a loan from a bank, you will be charged:
Question options:
for principal but not interest.

for interest but not principal.

for both principal and interest.

 for interest only.

Question 33
Which of the following statements is true if you increase your
monthly payment above the required loan payment?
Question options:
The extra portion of the payment does not go to the principal.

You can significantly increase the number of payments needed to pay off the loan.

The extra portion of the payment increases the principal.

You can significantly reduce the number of payments needed to pay off the loan.

Question 34
We can write the true relationship between the nominal
interest rate and the real rate and expected inflation as which
of the following?
Question options:
(1 + r) = (1 + r) × (1 + h*)

r = (1 + r*) × (1 + h) - 1

r* = (1 + r) × (1 + h) -1

r = (1 + r*) × (1 + h) + 1

Question 35
Assume that you are willing to postpone consumption today
and buy a certificate of deposit (CD) at your local bank. Your
reward for postponing consumption implies that at the end of
the year:
Question options:
you will be able to consume fewer goods.

you will be able to buy the same amount of goods or services.

you will be able to buy fewer goods or services.

 you will be able to buy more goods or services.

Question 36
The typical payments on a consumer loan are made at:
Question options:
the end of each day.

the end of each week.

the end of each month.

the beginning of each month.

Question 37
What is the EAR if the APR is 10.52% and compounding is
daily?
Question options:
Slightly above 10.09%

Slightly below 11.09%

Slightly above 11.09%

Over 11.25%

Question 38
Suppose you invest $2,000 today, compounded monthly, with
an annual interest rate of 7.5%. What is your investment worth
in one year?
Question options:
$2,150

$2,152.81

$2,155.27

$2,154.77

Question 39
Suppose you postpone consumption so that by investing at 8%
you will have an extra $800 to spend in one year. Suppose
that inflation is 4% during this time. What is the approximate
real increase in your purchasing power?
Question options:
$800

$600

$400

$200

Question 40
Which of the following statements is true?
Question options:
On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the EAR rate.
On many calculators the TVM key for interest is Y/I; this is Interest per Year, or the APR rate.
On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the APR rate.
On many calculators the TVM key for a period is I/Y.

  

BU340 Week 5 Threaded Discussion

Discuss how effective bond rating agencies are? Is there room for improvement. Why or why not?

(193 words with 1 reference)

BU340 Week 6 Threaded Discussion

Compare the primary market to the secondary market.
(159 words with 1 reference)

BU340 Lesson 6 & 7 Exam SCORE 95 PERCENT

2.5 / 2.5 points
Moody's has developed a corporate bond default-risk rating
system using capital and lowercase letters and numbers.
Below are several examples of Moody's ratings. Which answer
choice lists a collection of ratings for "high credit investment
grade" bonds?
Question options:
Baa1, A1, A3

Ba1, Baa2, Baa3

Aa2, Aa3, A1

Caa, Ca, C

Question
2
A bond is a __________ instrument by which a borrower of
funds agrees to pay back the funds with interest on specific
dates in the future.
Question options:
long-term equity

long-term debt

short-term debt

short-term equity

Question
3
When a company is in financial difficulty and cannot fully pay
all of its creditors, the first lenders to be paid are the:
Question options:
stockholders.

sinking fund holders.

junior debtholders.
 senior debtholders.

Question
4
The __________ is the regular interest payment of the bond.
Question options:
dividend

par

coupon rate

coupon

Question 5
As the rating of a bond increases (for example, from A, to AA,
to AAA), it generally means that:
Question options:
the credit rating increases, the default risk increases, and the required rate of return decreases.

the credit rating increases, the default risk decreases, and the required rate of return increases.

the credit rating increases, the default risk decreases, and the required rate of return decreases.

the credit rating decreases, the default risk decreases, and the required rate of return decreases.

Question
6
The __________ is the interest rate printed on the bond.
Question options:
coupon rate

semiannual coupon rate

yield to maturity

compound rate

Question
7
The difference between the price and the par value of a zero-
coupon bond represents:
Question options:
taxes payable by the bond buyer.

the accumulated principal over the life of the bond.

the bond premium.

the accumulated interest over the life of the bond.

Question
8
Bonds are sometimes called __________ securities because they
pay set amounts on specific future dates.
Question options:
variable-income

fixed-income

bully

real

Question 9
From 1980 to 2006, the default risk premium differential
between Aaa-rated bonds and Aa-rated bonds has averaged
between:
Question options:
50 to 150 basis points.

90 to 190 basis points.

120 to 220 basis points.

250 to 350 basis points.

Question 10
"Junk" bonds are a street name for __________ grade bonds.
Question options:
investment
 speculative

extremely speculative

speculative and investment

Question 11
When the __________ is less than the yield to maturity, the
bond sells at a/the __________ the par value.
Question options:
coupon rate; premium over

coupon rate; discount to

time to maturity; discount to

time to maturity; same price as

Question 12
Delagold Corporation is issuing a zero-coupon bond that will
have a maturity of 50 years. The bond's par value is $1,000,
and the current yield on similar bonds is 7.5%. What is the
expected price of this bond, using the semiannual convention?
Question options:
$25.19

$250.19

$750

$1,000

Question 13
When real property is used as collateral for a bond, it is
termed a/an:
Question options:
debenture.

mortgaged security.
 indenture.

senior bond.

Question 14
Zero-coupon U.S. Government bonds are known as:
Question options:
STRIPS.

muni-bonds.

Uncle Sam's Empty Pockets.

BLANKS.

Question 15
With a bearer bond, whoever held it was entitled to the
__________ and the __________.
Question options:
interest payments; principal

dividend payments; principal

interest payments; dividend payments

interest payments; voting rights

Question 16
Espresso Petroleum Inc. has a contractual option to buy back,
prior to maturity, bonds the firm issued five years ago. This is
an example of what type of bond?
Question options:
Putable bond

Callable bond

Convertible bond

Junior bond

Question 17
Which of the following is NOT an example of a bond that
contains an option feature?
Question options:
Callable bond

Putable bond

Convertible bond

The above are all examples of bonds with option features.

Question 18
The __________ is the expiration date of the bond.
Question options:
future value

yield to maturity

maturity date

coupon

Question 19
The __________ is the annual coupon payment divided by the
current price of the bond, and is not always an accurate
indicator.
Question options:
current yield

yield to maturity

bond discount rate

coupon rate

Question 20
Which of the following statements about the relationship
between yield to maturity and bond prices is false?
Question options:
 When the yield to maturity and coupon rate are the same, the bond is called a par value bond.
A bond selling at a premium means that the coupon rate is greater than the yield to maturity.
When interest rates go up, bond prices go up.
A bond selling at a discount means that the coupon rate is less than the yield to maturity.
Online Exam 7
2.5 / 2.5 points
The __________ is the market of first sale in which companies
first sell 
their authorized shares to the public.
Question options:
primary market

secondary market

bull market

Nasdaq market

Question 22
Which of the statements below is true?
Question options:
The profits for common stock owners come after payment to the employees, suppliers, governm

Shareholders elect the board of directors, which ultimately selects the bondholder team that runs

Stock is a minor financing source for public companies.

Stockholders are paid before debtholders (bondholders) if a company fails.

Question 23
__________ means that the percentage increase in the dividend
is the same each year.
Question options:
Constant growth

Inconsistent growth

No growth

A constant cash flow

Question 24
Which of the statements below is true?
Question options:
A problem with using the dividend growth model is that it appears to underestimate the expected

A problem with using the dividend growth model is that it produces a negative expected return w

A problem with using the dividend growth model is that it produces a positive expected return w

A problem with using the dividend growth model is that it produces a negative expected return w

Question 25
If we know the dividend stream, the future price of the stock,
the future selling date of the stock, and the required return,
we can price stocks just as we priced:
Question options:
annuities.

perpetuities.

bonds.

preferred stocks.

Question 26
Which of the statements below is FALSE? Answer:

Question options:
The dividend model requires that a firm have a cash dividend history and that the dividend histo

A problem with using the dividend growth model is that it appears to underestimate the expected

A problem with using the dividend growth model is that it produces a negative expected return w

A problem with using the dividend growth model is that it appears to underestimate the expected

Question 27
You can think of the __________ as the "used stock" market
because these shares have been owned or "used" previously.
Question options:
 secondary market

primary market

NYSE market

initial public offering market

Question 28
The hiring process for an investment banker can happen in
two ways. Which of the below is one of these ways?
Question options:
Randomly choose an investment banking firm from a list of underwriting firms.

Pick a desirable investment banking firm, usually basing the choice on the reputation and history

Have the primary government regulator of your industry choose the best investment banking firm

Solicit advice from a government agency and use it as your primary guide in choosing an investm

Question 29
Strong-form efficient markets theory proclaims that:
Question options:
one can chart historical stock prices to predict future stock prices such that you can identify misp

one can exploit publicly available news or financial statement information to routinely outperfor

current prices reflect the price and volume history of the stock, all publicly available information

current prices reflect the price and volume history of the stock, all publicly available information

Question 30
You buy a stock for which you expect to receive an annual
dividend of $2.10 for the 15 years that you plan on holding it.
After 15 years, you expect to sell the stock for 32.25. What is
the present value of a share for this company if you want a
10% return?
Question options:
$7.72
 $15.97

$23.69

$31.41

Question 31
You want to invest in a stock that pays $6 annual cash
dividends for the next five years. At the end of the five years,
you will sell the stock for $30. If you want to earn 10% on this
investment, what is a fair price for this stock if you buy it
today?
Question options:
$41.37

$40.37

$22.75

$18.63

Question 32
A typical practice of many companies is to distribute part of
the earnings to shareholders through:
Question options:
quarterly stock splits.

quarterly cash dividends.

semiannual cash dividends.

annual stock dividends.

Question 33
Shortcomings of the dividend pricing models suggest that we
need a pricing model that is more inclusive than the dividend
models and provides expected returns for companies based
on aspects besides their historical dividend patterns. Which of
the below is NOT one of these aspects?
Question options:
The company's risk

The premium for taking on risk

The reward for waiting

Stable dividends

Question 34
__________ has to do with the speed and accuracy of
processing a buy or sell order at the best available price.
Question options:
Market efficiency

Mechanical efficiency

Informational efficiency

Operational efficiency

Question 35
Which of the statements below is FALSE?
Question options:
In estimating the current price using the constant growth dividend <br /> model, we let g be the
return required by the potential buyer of the stock.
Constant growth means that the percentage increase in the dividend is <br /> the same each year

<p> Div₀ refers to the dividends that were just been paid to the current owner of th

One unlikely dividend pattern is to raise or grow dividends by a fixed <br /> amount at fixed int

Question 36
In the United States, there are three well-known secondary
stock markets. Which of the below is NOT one of these?
Question options:
The New York Stock Exchange (NYSE)

The Chicago Stock Exchange (CSE)

 The National Association of Securities Dealers and their trading system NASDAQ (National As

The American Stock Exchange (AMEX)

Question 37
Stocks are different from bonds because:
Question options:
stocks, unlike bonds, are major sources of funds.

stocks, unlike bonds, represent residual ownership.

stocks, unlike bonds, give owners legal claims to payments.

bonds, unlike stocks, represent voting ownership.

Question 38
Which of the statements below is FALSE?
Question options:
The profits for common stock owners come before payment to employees, suppliers, governmen

Shareholders elect the board of directors, which ultimately selects the management team that run

Stock is a major financing source for public companies.

Common stock's ownership claim on the assets and cash flow of a company is often referred to a

Question 39
Which of the statements below is true?
Question options:
Buying of shares is the selling of ownership in the company.

A company is said to go &quot;private&quot; when it opens up its ownership structure to the ge

Private companies choose to sell stock to attract permanent financing through equity ownership

Most companies have the resident expertise to complete an initial public offering (IPO), or first

Question 40
Which of the statements below is FALSE?
Question options:
If an investor purchases 20% of the initial issue of the company, the investor then owns 20% of the com
 After an initial offering, the company can sell more shares to the public at a later date. If the investor w
issue, his or her ownership is diluted below 20%.
A preemptive right enables one to maintain one's proportional level of ownership.
A preemptive right is never particularly valuable to shareholders with large ownership percentages.

  

BU340 Lesson 8 Exam SCORE 100 PERCENT

Question 1

Which of the statements below is true?

Question options:
Investors want to maximize return and maximize risk.

Investors want to maximize return and minimize risk.  (*This is correct)

Investors want to minimize return and maximize risk.

Investors want to minimize return and minimize risk.

Question 2
The practice of not putting all of your eggs in one basket is an
illustration of:
Question options:
variance.

diversification.

portion control.

expected return.

Question
3
The security market line has:
Question options:
 a positive slope.

a negative slope.

no slope.

a beta of 1.0.

Question
4
Given an expected market return of 12.0%, a beta of 0.75 for
Benson Industries, and a risk-free rate of 4%, what is the
expected return for Benson Industries?
Question options:
13%

10%

9%

4%

Question
5
For most stocks, the correlation coefficient with other stocks
is:
Question options:
positive.

negative.

zero.

The distribution of correlation coefficients between stocks is uniform from -1.0 to +1.0.

Question
6
Stocks A, B, C, and D have standard deviations, respectively,
of 20%, 5%, 10%, and 15%. Which one is the riskiest?
Question options:
 Stock A

Stock B

Stock C

Stock D

Question
7
Travis bought a share of stock for $31.50 that paid a dividend
of $.85 and sold six months later for $27.65. What was his
dollar profit or loss and holding period return?
Question options:
-$3.00, -9.52%

-$3.85, -12.22%

-$.85, -2.70%

-$3.85, -9.52%

Question 8
__________ may be defined as a measure of uncertainty in a set
of potential outcomes for an event in which there is a chance
for some loss.
Question options:
Diversification

Risk

Uncertainty

Collaboration

Question
9
The __________ is the intercept on the security market line.
Question options:
prime rate
 risk-free rate

market rate of return

beta

Question 10
Which of the following investments is considered to be default
risk-free?
Question options:
Currency options

AAA-rated corporate bonds

Common stock

Treasury bills

Question 11
Correlation, a standardized measure of how stocks perform
relative to one another in different states of the economy, has
a range from:
Question options:
0.0 to +10.0.

0.0 to +1.0.

-1.0 to +1.0.

There is no range; correlation is a calculated number that can take on any value.

Question 12
Jarvis bought a share of stock for $15.75 that paid a dividend
of $.45 and sold three months later for $18.65. What was his
dollar profit or loss and holding period return?
Question options:
$2.90, 18.41%

$3.35, 21.27%
 -$2.90, -18.41%

$.45, 2.86%

Question 13
Find the variance for a security that has three one-year
returns of 5%, 10%, and 15%.
Question options:
10%

16.67%

25%

30%

Question 14
Find the variance for a security that has three one-year
returns of -5%, 15%, and 20%.
Question options:
175%

75%

58.33%

25%

Question 15
Use the following table:

States of the Probability of the 3-Month T- Large-Company Small-Company

Economy State Bill Stock Stock
Boom 0.3 4 10 30
Steady 0.5 4 5 20
Recession 0.2 4 0 10

What is the difference between the variances for large- and

small-company stocks?

Question options:
 40.25%

36.75%

27.30%

14.90%

Question 16
The correlation coefficient, a measurement of the
comovement between two variables, has what range?
Question options:
From 0.0 to +10.0

From 0.0 to +1.0

From -1.0 to +10.0

From =1.0 to -1.0

Question 17
Stock A B C D
Expected Return 5% 5% 7% 6%
Standard 12
10% 12% 11%
Deviation %

Which of the following statements is true?

Question options:
A is a better investment than B.

B is a better investment than C.

C is a better investment than D.

D is a better investment than C.

Question 18
Unsystematic risk:
Question options:
is also known as nondiversifiable risk.

can be diversified away.

 is system-wide risk.

is equal to 2 times the systematic risk.

Question 19
Which of the following statements is true about variance?
Question options:
Variance describes how spread out a set of numbers or values are around its mean or average.

Variance is essentially the variability from the average.

The larger the variance, the greater the dispersion.

All of the above statements are true.

Question 20
Assume the following information about the market and
JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free
rate is 3.5%, the market risk premium is 10%. Using the SML,
what is the expected return for JumpMasters' stock?
Question options:
7.5%
13.5%
18.5%
27%